As capital importation into Nigeria rose to the pre-pandemic high, hitting $3.38bn in the first quarter of 2024, market watchers have projected that it will go higher on the back of interest rate hikes in Nigeria and rate cuts in advanced economies.

In the latest Nigerian Capital Importation for Q1 2024 released by the National Bureau of Statistics, total capital importation went up by 198.06 per cent to $3.38bn compared to $1.13bn recorded in Q1 2023.

On a quarter-on-quarter basis, capital importation rose by 210.16 per cent from $1.09bn in the preceding quarter.

Analysts have said that this was the highest inflow recorded since the pandemic era ($5.85bn in Q1 2020) and attributed the uptick to improved investor sentiment and confidence amid fluctuations in foreign exchange policies and the devaluation of the naira.

United Capital in its Economic Flash Note, shared with The PUNCH on Wednesday, projected that the inflows would continue to increase on the back of the high interest rate in the country, which was expected to persist.

“We expect sustained improvement in total capital imported into Nigeria, majorly accruing from foreign portfolio investors. This is on the back of the high interest rate environment within the nation and the hawkish stance of the Monetary Policy Committee.

“The MPC remains committed to combating rising inflationary pressures by tightening the economy and reducing the money supply. At the next MPC meeting scheduled for the 22nd and 23rd of July 2024, we expect the committee to continue with its contractionary policy tools, albeit less aggressive, with a probability of hiking the benchmark interest rate by 25–50 basis points. As a result, we expect money market and fixed-income market rates to remain elevated and attractive to foreign investors.

“Additionally, we expect capital inflows from the global market into Nigeria. This is due to the expectation of dovish monetary policy postures among major central banks, as evident by the recent rate cut by the European Central Bank Foreign investors will in turn flood developing markets, offering more attractive yields on their instruments.”

On the downside, though, United Capital projected that foreign direct investment may remain subdued in the coming quarters as investors tread with caution.

“We expect foreign investors to remain cautious towards the Nigerian markets, as fiscal sustainability concerns linger. Lastly, we expect FDI inflows to remain subdued in the absence of any bold infrastructural development,” the firm stated.

Debt sustainability concerns, insecurity, and a chronic lack of enabling infrastructures, such as power and transportation constraints, were identified as some of the factors discouraging long-term commitments to the country through FDI.

A closer look at the report showed that foreign portfolio investment contributed the bulk of the total capital imported into Nigeria in Q1-2024, accounting for 61.5 per cent higher than the 28.5 per cent contribution in Q4-2023.

Total FPI inflows stood at $2.1bn in Q1-2024, 570.1 per cent higher than $309.8m in Q4-2023 and 219.7 per cent higher than $649.3m in Q1-2023.

Notably, FPIs majorly flowed into money market instruments, which grew by 592.3 per cent quarter-on-quarter to settle at $1.6bn in Q1 -2024.

On a year-on-year basis, it expanded by 1,175.2 per cent compared to the $125.9mn recorded in Q1-2023, on the back of the higher money market rates experienced in the quarter under review.

The Central Bank of Nigeria had begun its inflation-targeting efforts and strong fight against FX pressures in Q1, 2024.

Accordingly, the CBN conducted an OMO auction to mop up excess liquidity and offered very attractive rates to appeal to foreign investors in the nation.

The inflows from foreign portfolio investors helped improve dollar supply and marginally ease foreign exchange pressures in the quarter, which saw the naira plummet to as low as 1,600/$1 on the official market and 1,800/$1 on the parallel market.

Another component of capital importation was foreign direct investment, which remained underwhelming as it contributed only 3.5 per cent to the total capital imported into Nigeria.

Total FDI inflows fell by 35.2 per cent quarter-on-quarter to $119.2m from $184.0m in Q4 2023.

The other investments category increased by 93.6 per cent quarter-on-quarter from $594.8mn in Q4- 2023 to $1.2bn in Q1-2024, accounting for 35.0 per cent of the total capital imported and inflows emanated mainly from loans.

The banking sector recorded the highest inflow with $2.07bn, representing 61.24 per cent of total capital imported in Q1 2024, followed by the trading sector, valued at $494.93m (14.66 per cent), and the production/manufacturing sector with $191.92m (5.68 per cent).

Conversely, the oil and gas and drilling sectors saw little to no investment, while the marketing, consultancy, and construction sectors received inflows valued at $60,000, $300,000, and $610,000, respectively.

The United Kingdom ranked top in Q1-2024 with $1.8bn, accounting for 53.5 per cent of total capital imported into Nigeria.

That was followed by the Republic of South Africa and the Cayman Islands, valued at $582.3mn (accounted for 17.3 per cent) and $186.2mn (accounted for 5.5 per cent), respectively.